Thread: The BIG squeeze on the middle class

The squeeze on the middle class

For a generation of workers finding it ever harder to afford homes of their own, the American dream seems to need readjustment.

By Lauren Barack, MSN Money
Julia Boone is a lawyer and her husband is a small-business owner, but they still can't afford to buy a house in their home community of Falls Church, Va., a suburban enclave within commuting distance of Washington, D.C.

"Who are all these people buying million-dollar homes in our neighborhood?" she asks. "We feel like outsiders."

Video: See Julia's neighborhood

Boone works in a small family firm and makes what she considers a competitive, even upper-middle-class, salary. Certainly it's enough that she and her husband, Tim, can shop regularly at Whole Foods and Costco for organic fruit, bags of romaine hearts and cases of Pellegrino. They can even splurge occasionally -- on the "ridiculously expensive" camera she just bought, for instance, or the crib they really do need, since they recently had their first child.

But put it all together, and the nursery the Boones crave -- a nursery in their own home -- is just not in the cards right now. The $2,000 they pay in monthly rent isn't breaking the budget, but Julia believes owning a home would double that cost, and she isn't confident her family could make that leap.

Her frustration is shared by millions of Americans now struggling to maintain a lifestyle that was taken for granted even a decade ago. A home of our own, a vacation in summer, a college education for our kids -- it's still the American dream, but it's all getting harder and harder to attain. Video: Are you middle class?

"We're very invested in the idea of being middle class," says Erica Chito Childs, an assistant professor of sociology at New York's Hunter College. "People still have this idea of upward mobility in this country -- that they should be able to achieve more, but the current economic situation has made that much more difficult."

Talk back: Do you feel squeezed in the middle class?

Income statistics don't tell the whole story. Across America, people seem to be making better salaries year after year. The median household income has risen from $36,847 in 1967 to $48,201 in 2006, according to U.S. Census Bureau inflation-adjusted data. Though the bureau doesn't define "middle class," the income of the middle half of the households in this country now seems to fall roughly between $25,000 and $95,000 a year. Chart: The rich are getting richer

The problem is that "middle" and "median" incomes no longer seem to provide the kind of comfort and security that Americans have become accustomed to. In most parts of America, a $48,000 annual income isn't enough to fund a comfortable life -- dinner on the table at 6 p.m., the kids watched by a safe and affordable caregiver, a guaranteed summer vacation and a nest egg accruing so that, at age 65, Mom and Dad can look forward to their leisure years worry-free.

"Middle class has always meant stability," Chito Childs says. "So if people don't feel stable, they can question their middle-class status and can feel a personal failure rather than understanding that's the way the economy works."

Take a hypothetical one-child family in Chicago in the middle-income range. Both parents work, together earning about $95,000, with a take-home pay of roughly $5,800 a month after taxes and some deductions for medical insurance.

Then consider that the average sale price for a four-bedroom, 2.5-bathroom single-family home in Chicago was $732,000 in 2007, according to Coldwell Banker's Home Price Comparison Index. At that price, a 30-year mortgage with 20% down clocks in at about $3,600 a month.

Add to that bill the $850 a month for infant care that Illinois residents pay, on average, for full-time coverage, according to the National Association of Child Care Resource and Referral Agencies. Financial experts also suggest that workers save at least 10% of their gross income for retirement. That's an additional $800 less disposable income for this family.

What's left over? About $550 a month for food, commuting costs, utilities, doctor bills and diapers. It's not enough.

Families generally can find cheaper houses farther from city centers. Drive about 34 miles west of Chicago to Carol Stream, Ill., and the average sale price for a single-family home drops to $354,000, according to Coldwell Banker's index. But most jobs are in the metro areas, so the compromise for a more affordable home is a long commute for most middle-class earners.

Today, parents race home from workdays that tend to stretch well beyond the traditional eight hours -- extended further by ever-lengthening commutes. They fret about the lack of "family time" as they step on the gas but fear losing their jobs if they leave work earlier. Meanwhile, employers are cutting pension plans, eliminating jobs and passing along more and more of skyrocketing health-care costs, even as insurance companies raise deductibles and shave reimbursements.

Vacations get shorter and less rewarding, as BlackBerrys and Wi-Fi connections make it easier for companies to reach employees anywhere in the world. And that's if a holiday is affordable at all, given many middle-class families' already-paper-thin financial cushions.

Presidential candidates are promising help, but it may not be enough. Even Barack Obama's proposal for an income-tax cut of $500 per person -- or $1,000 for a working family -- can hardly make much difference;

many working families lay out at least that much every month for child care alone.

Many families find they can keep their heads above water as long as they can hold on to one life preserver: their own home. Unfortunately, home ownership has come to be a daunting challenge for America's middle class, even amid recent declines in home prices. The Boones might be painting that new nursery if they lived in Wichita, Kan., where the average sale price for a single-family home in 2007 was $156,500. But in and around the country's major urban areas, their income just falls short.

So if homeownership is no longer attainable, what does "middle class" mean in America?

"Social mobility has slowed down considerably from what it was, say, in the 1950s, 1960s, 1970s -- and I think that has an effect on people's perceptions," says Dennis Gilbert, a sociology professor at Hamilton College in Clinton, N.Y., and author of "The American Class Structure in an Age of Growing Inequality." "I think a lot of people think that middle class means you're moving up, that you aspire to be something better. Not that some people aren't improving themselves, but that seems harder now."

My family feels lucky to own a two-bedroom, one-bathroom apartment in New York. But in our tiny space, our daughter, Harper, watches over a school of fish and pretends she's a "kitty" rather than playing with a real one. Video: See Lauren Barack's family

In income terms alone, my husband, Michael, and I are firmly planted in this country's middle class -- but it often doesn't feel that way. We've tried to build some savings cushion, but I know it's not enough. One stroke of bad luck and we, like many in this country, could lose our home.

The comfort level I had as a child -- and thought I would have now -- isn't there. And we get some breaks that other families don't: Our child-care costs have dropped now that Harper is in kindergarten, for instance, and living in Manhattan, we don't need to own a car.

So my husband and I are creating our own definition of middle class. Like most of our friends, we have struggled with day-care costs, pooled frequent-flier miles to get away for a week in July and wondered if we'll ever have enough saved to retire.

Foolishly or not, most of us still believe that each generation should do a little better than the last. But that promise will be hard to keep. Maybe ours will be the first generation to be disappointed.

"I really wanted to have a nursery I could decorate for the baby," says Julia Boone. "Instead we split an extra room. I always envisioned painting a room in my own home -- the way you're supposed to do with your first child. But that will have to wait."

http://articles.moneycentral.msn.com/In ... FitIn.aspx

Everything we were taught to work towards and value is not the same anymore. Unfortunatly they never passed out the new rule book to survive and plan in this new society. I'm tired of hearing about how wealthy we are compared to 3rd world countries when we weren't raised in one and the challenges and lifestyle are totally different. Pull them out and toss them in here and many miss the simplicity of their old world.

Right now the slighest mistake can destroy you. There's vultures at every turn to where it's hard to trust anyone and I for one wasn't raised to function in this new world. They dangle the McMansions and all like a carrot in front of you as a measurement of success that many run themselves in ground to attain.....yet can be ripped out from under you so easily.....and they wonder why people are depressed, alcoholics, drug addicts, sick, stressed out and everything else......you can plan perfectly and still have it all ripped out from under you in an instant.

It's not the world I grew up in and I never left.....

I for one have really felt the pinch for our family in the last two years. Everything is skyrocketing in price with no end in sight. Our income has not kept up with inflation and I get nervous thinking about things like: "Gee, wonder if we will be having $400 a month electricity bills in 10 years".....I wonder if there will be enough water for everyone (in an Diego county) in 10 years. This makes having a solar home with a well sound really good right now.
A trusted source told my family that this economy could go on another 10 years like this (and worse) and that we shouldn't be surprised if we see $6 a gallon gas in the next two years. I want a hybrid car really bad about now....wonder what this gas crunch is going to do to the price of those????

In 10 years there will no longer be a middle class. We will be a two class society much as Mexico is. It will simply be the rich and the poor. Poor will be defined anyone making under $100,000 a year, which even now is not enough to live comfortably in many cities here in CA. The average middle class home here is over $500,000 and to qualify for a 30 years fixed at 5%, you need to have a combined income of close to $150,000, with typical 10% down.

If this comes true, then we will be one of those old couples eating cat food for meals.